Crude oil at a record low - investment opportunity?

Count_Dante

You could just buy the shares of oil companies for an easier life.

sh856531

With crude at these prices, no-one is making money,

Ah, that'll be why ExxonMobil made the largest profit in corporate history in 2008 then? :-)

Clearly they benefited from the crazy high oil price for some of the year (but not all of it), however the big 5 oil companies were'nt exactly slumming it when oil was around $20 p/b either.

I haven't quite figured out why some of the oil companies are saying they don't make any money when oil is below $70 pb or whatever it is. Oil companies have always been amongst the most profitable businesses in the world even when oil was at half that amount.

Does anyone know what they're blethering on about?

:-)

Best regards

S

tradetime

lomhicy4 wrote: »

Does anybody know how LOIL is supposed to work?

I know leveraged ETF do not always appear to work the way you might think, and there is a time difference between the tracked subindex and London.

However on Feb 5, LOIL has the following figures

Previous close $4.6, Open 4.35, High 4.42. Low 4.17 closing at -7.83% after being negative all day.

However DJAIGCL the tracked sub-index on the same day, has been positive nearly all day, is current +2.11 and has never got lower than -2% all day.

So for the single day Feb %, there is a difference of +2*2.11 + 7.83 = over 12% difference.

What is going on please? Is LOIL just a scam? I know on some American websites people say they should be banned, but would appreciate some more info here if possible

I am not familar with this particular symbol, however most ETF's that track oil use futures contracts, the price for oil you see most any website it is displayed is for the front month futures contract, many of the leveraged products use one or more later dated contracts, also due to the steep contango in Crude at the moment there is often an undesirable price movement when they roll from one contract to the next.
There is further, as if that wasn't enough, a problem with the way that leveraged funds track their underlying that is drawing a lot of attention at the moment, I will see if I can find a write up on it for you if I can, as I don't actually fully understand it myself. The jist, as far as I can tell though, is that leveraged products are not all that suitable for holding long term.

tradetime

sh856531 wrote: »

Ah, that'll be why ExxonMobil made the largest profit in corporate history in 2008 then? :-)

Clearly they benefited from the crazy high oil price for some of the year (but not all of it), however the big 5 oil companies were'nt exactly slumming it when oil was around $20 p/b either.

I haven't quite figured out why some of the oil companies are saying they don't make any money when oil is below $70 pb or whatever it is. Oil companies have always been amongst the most profitable businesses in the world even when oil was at half that amount.

Does anyone know what they're blethering on about?

:-)

Best regards

S

As you say yourself, 2008 was the year when oil reached $147 pbl, in actual fact the average for the entire year was $100, that won't be the case this year though. A look at Exons 4th quarter shows profits were down substantially for that period.

As for the $70 thing, that is the price that oil producing countries such as Saudi, Iran, Russia, Venezuela, Lybia, etc say they need to cover the costs of bringing up oil, exploration for new fields, and bringing new wells online

sh856531

As you say yourself, 2008 was the year when oil reached $147 pbl, in actual fact the average for the entire year was $100, that won't be the case this year though. A look at Exons 4th quarter shows profits were down substantially for that period.

Sure - I don't doubt that their profits will be well down, but even if they were a quarter of their 2008 profits, that would still be a hell of a lot of cash - so they're not exactly making "no money"

I'd be interested in hearing peoples thoughts on BP though. I don't know if I misread the article but I seem to remember it saying something like they'd lost $3-4 bil in the 4th quarter due to the drop in the oil price. I'm pretty sure BP was previously a record holder for the largest UK profit in corporate history not that long ago, so does anyone know how they could lose that much money in 3 months?

I know the $70 thing was largely coming from governments, but I'm sure I've heard a couple of companies saying it as well. What with BPs drop in profits I'm begining to wonder if it might not be just hot air....

Does anyone know why oil at $50pb is seemingly no longer profitable for BP, given that they made shed loads of cash when it were 20pb not all that long ago? Has it really go that much more expensive to pull the stuff out of the ground?

Best Regards

S

wombat42_2

The existing oil fields decrease their output by over 6% per year so new fields have to be started to stand still.

The fact that oil prices is currently so low is causing severe supply destruction as it just isnt economic to start many new field. Supply destruction will in time seriously outweigh any demand destruction.

Oil prices could well spike massively in 2010 and one financial commentator (Mike Hampton) has seriously suggested $400 oil in 2012 or 2013.

However it is sure to be a bumpy ride so only invest meoney in oil that you can commit to for the long term if necessary.